Governor: Allow States To Tax Internet, But Then Cut Income Taxes

File photo. Gov. Asa Hutchinson (R) speaking to reporters after addressing the Arkansas General Assembly at the beginning of a special session.

Credit Jacob Kauffman / KUAR

The federal prohibition preventing states and localities from enforcing sales tax laws against out-of-state retailers should be lifted, but the additional revenues raised at the state level should be placed in a “lockbox” and offset with income tax cuts, Gov. Asa Hutchinson told the County Judges Association of Arkansas Friday.

Hutchinson said the combination would be more politically acceptable to pass at the federal level and would lower the income tax rate.

Hutchinson, who led the Legislature in enacting a $100 million tax cut package in his first legislative session in 2015, told the county judges that he would seek further tax cuts. He said a company CEO considering investing in Arkansas said the state’s comparatively high income tax is a disadvantage.

“Let me assure you that while I want to have another round of tax cuts down the road, I’m a prudent governor,” he said. “I’m careful about it. I don’t want to jeopardize our budget and our essential services that we provide, so we’re going to be careful about it. But we’re going to be looking to see what we can do down the road to be more competitive.”

Afterwards, he told reporters that he intends to present a tax cut package in 2017. He said an income tax cut will be his priority.

“It’s unclear as to what we’ll be able to do, but without any question, there will be a new round of tax cuts on the agenda,” he said. “But I’ll work with the Legislature to define that.”

Hutchinson encouraged the county officials to pass sales taxes or have a revenue stream for economic development. He cited Clark County, which saved the proceeds from an economic development tax passed in 2007 and had $10 million on hand to help woo the recently announced $1.3 billion Chinese-owned Sun Paper mill.

Hutchinson said the state almost didn’t land the plant. The announcement was made on Tuesday, April 26. The preceding Thursday, Hutchinson was meeting in his office with Sun Paper leadership, and the numbers indicated it would cost the company $70 million more to invest in Arkansas than Mississippi.

Hutchinson said he turned to Mike Preston, director of the Arkansas Economic Development Commission, who said the state had no more money to give. Hutchinson and his team then looked at more numbers, including the cost of infrastructure, and asked the chairman of Union Pacific to provide cost estimates for shipping. Arkansas made other changes to its incentive package.

On Monday, Hutchinson was meeting with Sun Paper’s chairman, Hongxin Li, in his office, who had a meeting with a Mississippi delegation and a phone call with the Mississippi governor scheduled the next day. Seeing the new numbers, Li cancelled those and chose Arkansas.

Hutchinson said the story illustrated the need for incentives in a competitive environment and praised Clark County for having money available to help secure the plant.

Hutchinson touted the recent news that Arkansas has the lowest unemployment rate in its history, 3.9%, and said that 51,000 new jobs had been created since he became governor. He said that factors such as the national economy had largely contributed to the gain and then added jokingly, “I am governor, and I’ll take credit for it when I can.”

Hutchinson accepted a compliment from one of the attendees about his response to the recent guidance from the Obama administration that schools should let transgender students use the bathrooms that match their gender identity. Hutchinson had released a statement that districts should disregard the directive. He reiterated that stance Friday.

“I got a little intense on that just simply because we handle this well in our schools,” he said. “We’ve got some very compassionate school superintendents. I believe this doesn’t need to be a mandate from Washington, D.C.”

Hutchinson also touted his administration’s efforts to reduce the backlog of prisoners in county jails to 900-1,100, saying prison space had been expanded through a $50 million program.

“The only complaint that I hear any more is, ‘Don’t take them all away’” because of county jails’ need for state reimbursements, he said.

Hutchinson said a system needs to be developed to divert the mentally ill into treatment instead of sending them to jail. He said the state should create mental health courts much like its courts for veterans and for low-level drug cases, and said the Arkansas Law Enforcement Training Academy is placing greater emphasis on identifying the mentally ill. He pointed to Sebastian County as an example of a county that is doing well with mental health issues.

He also called for a moratorium on adding 9-1-1 systems to the state’s system, which he said is “not working as efficiently as it should” and faces unreliable funding because of the decreased use of landlines, which pay for the services. A Blue Ribbon Committee on Local 911 Systems is looking at options, and he pledged to adopt recommendations in the 2017 sessions.

Arkansas Gov. Asa Hutchinson's highway plan is headed toward a final vote in the Legislature, while a Senate-backed effort to limit the funding for one year appears dead.

The Senate Revenue and Taxation Committee today endorsed Hutchinson's proposal to use the state's surplus, investment returns and other funds to raise nearly $50 million for road needs in the coming fiscal year.

The House approved the measure earlier today, and it's expected to go before the full Senate on Monday.